The Hottest Sector: Should You Short or Buy Software as a Service?

2. The Hottest Sector in the Stock Market- Should You Short It or Buy It? Bryan Beach, CPA Stansberry’s Venture Value

3. June 22, 2004… a New Sector Is Born

4. June 22, 2004… a New Sector Is Born

5. What We’ll Cover: • Introduce the hottest sector in the market • Why the market prefers these businesses • How the market values these business • Two actionable ideas

6. Software as a Service (“SaaS”) A software licensing and delivery model in which Software is licensed on a subscription basis. It is centrally hosted. It is accessed by users via a web browser. SaaS has become a common delivery model for many business applications.

7. Two Ways of Buying and Delivering Software:

8. Two Ways of Buying and Delivering Software:

9. Two Ways of Buying and Delivering Software:

10. What Does the Market Think?

11. What Does the Market Think?

12. What Does the Market Think?

13. What Does the Market Think?

14. What Does the Market Think? 15X Revenues 11X Revenues 15X Revenues 26X Revenues 15X Revenues

15. Valuation Interlude

16. Valuation Interlude

17. Valuation Interlude

18. Valuation Interlude

19. Valuation Interlude $98 per s/f

20. Valuation Interlude $640 per s/f $98 per s/f

21. Valuation Interlude $640 per s/f $98 per s/f $1,200 per s/f

22. What Is the Market Thinking?

23. I had breakfast the other day with a software entrepreneur. When I asked if his company was on a subscription or perpetual model he said: “We should kill the guy who invented the perpetual license — I’m on the perpetual money model, subscription all the way.” Dave Kellogg, tech investor

24. Looking for Actionable Ideas • Is this sector too hot? Is it overdone?

25. Looking for Actionable Ideas • Is this sector too hot? Is it overdone? • Are there any undiscovered SaaS plays?

26. Here’s an idea for a short

27. Here’s an idea for a short • It provides a “service” that nobody really likes. • Revenue is growing at 30% range per year. BUT share count has been growing faster than revenue. • The growth has come primarily from expensive acquisitions. • Margins are shrinking. (Actually, margins are getting more negative).This suggests the growth is not scaling. • Valuations are at the high end of the sky-high SaaS range.

28. Here’s an idea for a short • It provides a “service” that nobody really likes. • Revenue is growing at 30% range per year. BUT share count has been growing faster than revenue. • The growth has come primarily from expensive acquisitions. • Margins are shrinking. (Actually, margins are getting more negative). This suggests the growth is not scaling. • Valuations are at the high end of the sky-high SaaS range.

29. Where will the growth come from?

30. Where will the growth come from? “Everbridge serves 9 of the 10 largest U.S. cities, 8 of the 10 largest U.S.-based investment banks, 46 of the 50 busiest North American airports, 6 of the 10 largest global consulting firms, 6 of the 10 largest global auto makers, all 4 of the largest global accounting firms, 9 of the 10 largest U.S.-based health care providers, and 5 of the 10 largest U.S.-based health insurers.” -- Source: Everbridge

36. Shorting Instructions Sell short shares of Everbridge (Nasdaq: EVBG) when they trade for more than $60. Use a wider-than-normal 35% trailing stop loss.

37. Introducing: PAR Technology Government contractor (a good business) Restaurant hardware (a bad business) Restaurant software (a great business)

38. The Sources of Growth for PAR Tech • Pent-up demand from unmet customer requests. • Payment processing (merchant services) • Brink software has not yet started cross-selling to its hardware install base PAR’s hardware penetration: • Jack-in-the-Box – 100% penetration • Hardee's/Carl's Jr. – 75% penetration • KFC – 70% penetration • Pizza Hut – 70% penetration • Taco Bell – 70% penetration • Subway – 50% penetration • McDonald’s – 45% penetration

39. The Sources of Growth for PAR Tech • Pent-up demand from unmet customer requests. • Payment processing (merchant services) • Brink software has not yet started cross-selling to its hardware install base PAR’s hardware penetration: • Jack-in-the-Box – 100% penetration • Hardee's/Carl's Jr. – 75% penetration • KFC – 70% penetration • Pizza Hut – 70% penetration • Taco Bell – 70% penetration • Subway – 50% penetration • McDonald’s – 45% penetration

40. The Sources of Growth for PAR Tech • Pent-up demand from unmet customer requests. • Payment processing (merchant services) • Brink software has not yet started cross-selling to its hardware install base PAR’s hardware penetration: • Jack-in-the-Box – 100% penetration • Hardee's/Carl's Jr. – 75% penetration • KFC – 70% penetration • Pizza Hut – 70% penetration • Taco Bell – 70% penetration • Subway – 50% penetration • McDonald’s – 45% penetration

41. Introducing: Savneet Singh PAR Technology CEO

42. Introducing: Savneet Singh PAR Technology CEO Homework: Check out “The Investor’s Field Guide” podcast with Patrick O’Shaughnessy Google “the Berkshire of software” podcast

43. Buying Instructions Buy shares of Par Technology (NYSE: PAR) when they trade for less than $25. Be very careful building out your position.

44. Questions?